When asked to convert legal documents to ensure that they are compliant with the Consumer Protection Act (CPA) and its regulations sometimes a difficult situation arises: what happens if the CPA would only apply to some of your customers, but not others? What should be done to the documents to ensure compliance, without overly exposing you to legal risks ?
We believe there are a number of strategies that can be followed.
First: convert the documents fully with the CPA so that all your clients will have protection under the Act, regardless of whether they qualify to have that protection or not. While this approach is the least risky in terms of compliance, it does expose you to more legal risks as you will not be limiting liability for certain customers where legally you would be allowed to.
Second: abandon all your customers to whom the CPA applies, although this poses a few problems: firstly how can you effectively screen your existing customers (and future customers) to determine if the CPA will apply to them or not, secondly can you afford to lose the business they would bring in ? While this method will provide you with the least legal risk it is impractical.
Third: have two sets of documents, one fully compliant with the CPA and your existing terms. You would then provide the CPA compliant terms to customers who require protection under the CPA and your old terms to those who do not. This suffers similar problems to the solution above in that you will have difficulty screening clients and generally it becomes a nightmare trying to handle two sets of terms.
Fourth: You could do nothing, and adjust your terms when customers lay complaints. This is obviously a very reactionary approach and could possibly expose you fines from the National Consumer Commissioner.
Fifth: The approach we advocate, is to do a CPA ‘facelift’. By this we mean to do a partial conversion of your terms to bring them in line with the CPA, but leaving in clauses that will still not expose you unduly to legal risks. This will usually involve converting your documents into plain language, highlighting onerous clauses and removing clauses which are overtly prejudicial to the client and restructuring your returns policy (if needed). Amendments can be done to make the documents fully compliant as compliance notices are issued. The benefit of this method is that, if a compliance notice is issued, you can show that you have at least taken some steps to become compliant and a willingness to conform with the law. A crucial part of this method however is to re-engineer your business process’s to minimize the likelihood of consumers laying complaints.
Ultimately this a business decision in terms of the expense incurred to become compliant versus the legal risk of being sued under the Act.
The final consideration to bear in mind when doing this type of work, is where you fall in the supply chain, and if you have reseller (distributor) agreements. Obviously you would like to limit your liability, or at least shift some liability up the supply chain, while limiting your liability for those who lie down the supply chain. When considering reseller agreements it becomes vitally important to determine between who the contract will lie, as their are various types of reseller models.
For more information on our consumer protection act services see https://www.michalsons.com/focus-areas/consumer-protection-act-cpa-services and for our plain language services, see https://www.michalsons.com/focus-areas/plain-language-law.
